Internet gambling produced $15 billion in revenues on about 2,500 Web sites the year before it was outlawed.

The ban prohibits the use of credit cards, checks, wire transfers and other bank instruments to pay for wagers on the Internet.

Louis Roseman, director of bank operations and payment systems for the Federal Reserve, said an Internet gambling ban cannot be "ironclad."

"I don't think it's practical to be able to preclude the payment system from processing any unlawful Internet gambling transactions," Roseman said.

"There is going to be a proportion (of Internet gambling wagers) that will go through irrespective of our regulations," Roseman said. "The question is ... how large a proportion."

The Department of Treasury proposed the rules on Oct. 7 and drew more than 200 comments before a Dec. 12 deadline.

Valerie Abend, a deputy assistant secretary of the Department of Treasury, said federal officials are "making progress" in completing rules to ban Internet gambling.

But Abend echoed many of Roseman's concerns, saying it will be "difficult" for regulators to distinguish Internet gambling from otherwise lawful transactions online.

U.S. Rep. Spencer Bachus, R-Ala., who helped craft the Internet gambling ban, expressed dismay that federal regulators are having so much trouble in formulating rules to stop online wagering.

Bachus said the government has used 17 other federal statutes to crack down on drug trafficking, money laundering, terrorism and other illegal activity on the Internet.

"If you can't do something you're doing in 17 other statutes, it's sort of unusual," Bachus said.

Another conservative Republican, Jeb Hensarling of Texas, said the Internet gambling ban may cause the financial community to become "risk averse" in processing online transactions.

"If Congress passes a law that the federal government itself finds difficult or impossible to enforce and turns to private enterprise to enforce that law for them, then we must have clarity in our regulatory framework," he said.

"We need black and we need white, and we don't need shades of gray," he said.

The hearing included four witnesses from the financial community who all opposed the law imposing the Internet gambling ban.

"The (ban) takes banks beyond the role of reporting potentially or allegedly illegitimate financial activity, and makes banks and other financial institutions police, prosecutors, judges and executing marshals in place of real law enforcement officers when it comes to one of the most elusive of modern crimes, namely, unlawful Internet gambling," said Wayne Abernathy, executive vice president for financial institutions policy and regulatory affairs for the American Bankers Association.

Ted Kitada, a senior counsel for Wells Fargo & Co., said his company receives more than 11 million checks, 3 million debit transactions, and up to 30,000 wire transfers every day.

"To oversee these payment systems to identify restricted transactions is a significant and difficult mission," Kitada said.

Before any of the witnesses testified, Rep. Maxine Waters, D-Calif., who voted for the ban when it was attached to a port security bill in the waning days of the 2006 congressional session, said she was having second thoughts.

"I'm seldom in a position where I change my vote, but this may be one of those times," Waters said.

Rep. Barney Frank, D-Mass., who has introduced a bill to overturn the ban and require the Department of Treasury to regulate Internet gambling in the United States, described the current law as "an intrusion into personal liberty."

"The recipe for problems here is enormous," Frank said.

Frank's bill has 47 co-sponsors.

A bill by Rep. Shelley Berkley, D-Nev., calling for a one-year study of Internet gambling by the National Research Council of the National Academy of Sciences has 68 co-sponsors.

Contact reporter Tony Batt at tbatt@ stephensmedia.com or (202) 783-1760.